SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 26, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 0-8513
CHEFS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2058515
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
62Broadway, Point Pleasant Beach, NJ 08742 (Address of
principal executive offices)
(Registrant's telephone number, including area code) (732) 295-0350
------------------
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(Former name, former address and former fiscal year, if changes since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements of the past 90 days. Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:
Class Outstanding Shares at December 3, 1997
- ---------------------------- --------------------------------------
Common Stock, $.01 par value 4,489,769
1
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CHEFS INTERNATIONAL, INC.
I N D E X
PART I FINANCIAL INFORMATION PAGE NO.
Consolidated Balance Sheets - 1 - 2
October 26, 1997 and January 26, 1997
Consolidated Statements of Operations - 3
Nine Months Ended October 26, 1997 and
October 27, 1996
Consolidated Statements of Cash Flows - 4
Nine Months Ended October 26, 1997 and
October 27, 1996
Notes to Consolidated Financial Statements 5
Management's Analysis of Nine Months' Income 6 - 8
Statement
PART II OTHER INFORMATION
2
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PART I - FINANCIAL INFORMATION
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
October 26, 1997 January 26, 1997
(Unaudited)
Assets:
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $ 1,059,971 $ 951,668
Investments 196,000 160,000
Miscellaneous Receivables 124,263 147,101
Due on Sale of Discontinued Operations - Current 267,368 679,154
Inventories 1,141,149 925,463
Prepaid Expenses 96,618 88,509
------------ ------------
Total Current Assets 2,885,369 2,951,895
---------- ----------
Property, Plant and Equipment - At Cost 18,685,264 18,200,415
Less: Accumulated Depreciation 7,373,828 6,676,718
---------- ----------
Property, Plant and Equipment - Net 11,311,436 11,523,697
---------- ----------
Other Assets:
Investments 585,000 631,000
Goodwill - Net 536,820 557,364
Liquor Licenses - Net 709,150 727,663
Due on Sale of Discontinued Operations - Long-Term 261,609 508,593
Due from Related Parties 5,040 6,524
Other 40,525 38,333
------------ ------------
Total Other Assets 2,138,144 2,469,477
---------- ----------
Total Assets $16,334,949 $16,945,069
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
October 26, 1997 January 26, 1997
(Unaudited)
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 785,276 $ 967,245
Accrued Payroll 155,454 134,954
Accrued Expenses 409,195 337,897
Notes and Mortgages Payable to Banks 508,500 1,008,500
Capital Lease Obligations - Current 84,034 79,154
Other Liabilities 134,467 246,304
------------- -------------
Total Current Liabilities 2,076,926 2,774,054
------------ ------------
Long-Term Debt:
Notes and Mortgages Payable to Banks 433,915 807,999
Capital Lease Obligations - Long-Term 45,993 109,643
------------- ------------
Total Long-Term Debt 479,908 917,642
------------ ------------
Other Liabilities 70,970 82,396
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Stockholders' Equity:
Capital Stock - Common, $.01 Par Value, Authorized 15,000,000
Shares; Issued and Outstanding 4,489,769 and 4,488,291,
Respectively (see Note 4) 44,898 44,883
Additional Paid-in Capital 32,304,471 32,304,486
Accumulated [Deficit] (18,642,224) (19,178,392)
------------ ------------
Total Stockholders' Equity 13,707,145 13,170,977
---------- ----------
Total Liabilities and Stockholders' Equity $16,334,949 $16,945,069
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
Nine Months Ended Three Months Ended
October 26, 1997 October 27, 1996 October 26, 1997 October 27, 1996
<S> <C> <C> <C> <C>
Sales $14,808,673 $14,060,167 $ 4,970,149 $ 4,803,012
Cost of Goods Sold 4,848,063 4,599,802 1,636,330 1,558,111
---------- ---------- ---------- ----------
Gross Profit $ 9,960,610 $ 9,460,365 $ 3,333,819 $ 3,244,901
---------- ---------- ---------- ----------
Operating Expenses:
Payroll and Related Expenses $ 4,264,641 $ 4,127,254 $ 1,423,015 $ 1,377,844
Other Operating Expenses 3,099,324 2,981,354 1,015,725 987,107
Depreciation and Amortization 748,966 724,740 252,361 248,395
General and Administrative Expenses 1,355,210 1,295,059 475,683 431,617
---------- ---------- ---------- -----------
Total Operating Expenses $ 9,468,141 $ 9,128,407 $ 3,166,784 $ 3,044,963
---------- ---------- ---------- ----------
Income from Operations $ 492,469 $ 331,958 $ 167,035 $ 199,938
----------- ----------- ----------- -----------
Other Income [Expense]:
Interest Expense $ (69,529) $ (37,376) $ (20,255) $ (12,266)
Interest Income 113,228 65,794 46,550 22,504
----------- ----------- ----------- -----------
Total Other - Net $ 43,699 $ 28,418 $ 26,295 $ 10,238
----------- ----------- ----------- -----------
Income from Continuing Operations
Before Income Taxes 536,168 360,376 193,330 210,176
Provision for Income Taxes --- --- --- ---
-------------- --------------- -------------- --------------
Income from Continuing Operations 536,168 360,376 193,330 210,176
[Loss] from Operations of
Discontinued Ice Cream Business 0 (327,664) 0 (355,961)
-------------- -------- -------------- --------
Net Income [Loss] $ 536,168 $ 32,712 $ 193,330 $ (145,785)
========== ========== ========== =========
Net Income Per Share from Continuing
Operations $ .12 $ .08 $ .04$ .05
--------------- =============== ==============================
Net Income [Loss] Per Share$ .12 $ .01 $ .04 $ (.03)
=============== =============== =============== ==============
Weighted Average Shares 4,489,769 4,488,773 4,489,769 4,488,773
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
Nine Months Ended
October 26, 1997 October 27, 1996
Operating Activities:
<S> <C> <C>
Income from Continuing Operations $ 536,168 $ 360,376
----------- -----------
Adjustments to Reconcile Net Income to Net Cash
Provided by Continuing Operating Activities:
Depreciation and Amortization 748,966 724,740
Change in Assets and Liabilities:
[Increase] Decrease in:
Inventories (215,686) (148,443)
Prepaid Expenses (8,109) 37,510
Other Assets (708) 21,701
Miscellaneous Receivables 22,838 (150,520)
Increase [Decrease] in:
Accounts Payable (181,969) 27,865
Accrued Expenses and Other Liabilities (31,465) (6,747)
----------- ------------
Total Adjustments 333,867 506,106
---------- ----------
Net Cash - Continuing Operations 870,035 866,482
---------- ----------
Discontinued Operations:
[Loss] from Discontinued Operations --- (327,664)
Depreciation and Amortization --- 220,384
[Increase] Decrease in Net Assets --- (178,143)
-------------- ----------
Net Cash - Discontinued Operations --- (285,423)
-------------- ----------
Investing Activities - Continuing Operations:
Capital Expenditures (497,649) (900,086)
Sale or Redemption of Investments 10,000 (50,000)
Due on Sale of Discontinued Operations -
Payments Received 658,770 ---
Net Cash - Investing Activities - Continuing
Operations 171,121 (950,086)
Investing Activities - Discontinued Operations:
Capital Expenditures --- (100,432)
--------------- ---------
Financing Activities - Continuing Operations:
Repayment of Debt (1,032,853) (428,347)
Proceeds from Debt 100,000 100,000
--------- ----------
Net Cash - Financing Activities - Continuing
Operations (932,853) (328,347)
--------- ----------
Financing Activities - Discontinued Operations:
Repayment of Debt --- (13,260)
Proceeds from Debt --- 375,000
-------------- ----------
Net Cash - Financing Activities - Discontinued
Operations --- 361,740
--------------- ----------
Net Increase [Decrease] in Cash and Cash Equivalents 108,303 (436,066)
Cash and Cash Equivalents - Beginning of Periods 951,668 1,378,814
Cash and Cash Equivalents - End of Periods $1,059,971 $ 942,748
========= ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 67,763 $ 33,204
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited, however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results of the interim period.
The results of operations for the nine month periods ended October
26, 1997 and October 27, 1996 are not necessarily indicative of the results to
be expected for the full year.
NOTE 2: EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average
of outstanding common shares (see Note 4).
NOTE 3: INCOME TAXES
Effective January 1, 1993, the Company adopted FAS 109 "Accounting
for Income Taxes." The Company has a deferred tax asset of approximately
$5,111,900 arising from net operating loss carry forwards. However, due to the
uncertainty that the Company will generate income in the future sufficient to
fully or partially utilize these carry forwards, an allowance of $5,111,900 has
been established to offset this asset. The effect of adoption on current and
prior financial statements is immaterial.
NOTE 4: CAPITAL STRUCTURE
On November 7, 1996, the Company's stockholders approved a
one-for-three reverse stock split of the outstanding shares of the Company's
Common Stock, $.01 par value, without changing the par value of the Common
Stock. The one-for-three reverse split was effected at the close of business on
November 22, 1996. All share data has been adjusted to reflect this change.
NOTE 5: DISCONTINUED OPERATIONS
On February 20, 1997 (as of January 26, 1997), the Company sold 95%
of the Common Stock of Mister Cookie Face, Inc. (MCF), its ice cream production
segment to a director for an aggregate purchase price of $1,600,000, consisting
of a $500,000 cash payment and three notes totaling $1,100,000. The notes are
secured by a first lien on all of MCF's assets, however, the Company has agreed
to subordinate its lien to any liens subsequently granted by MCF to its Senior
Bank or Institutional Lender but only with respect to a maximum aggregate
$1,750,000 of indebtedness. Based on the estimated present value of the
payments, management set the aggregate value of the consideration at $998,950.
An additional amount of $188,797 was also due from MCF representing the balance
due on two capital leases which the Company will continue to pay. MCF has agreed
to reimburse the Company for the payments. The total net amount due from MCF at
October 31, 1997 was $528,977. The equipment subject to the lease was
transferred by the Company as part of the sale. The 5% of MCF capital stock
retained by the Company has been valued at $35,000.
5
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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MANAGEMENT'S ANALYSIS OF NINE MONTH INCOME STATEMENT
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RESULTS OF OPERATIONS
On February 20, 1997 (as of January 26, 1997) Chefs sold 95% of the
outstanding stock of its wholly-owned Mister Cookie Face, Inc. ("MCF")
subsidiary to a Chefs' director, Frank Koenemund. The statement of operations
for the nine months and quarter ended October 27, 1996 has been restated to
reflect this transaction as discontinued operations for comparative purposes.
Company sales were $14,808,700 for the nine months and $4,970,100 for the
third quarter ended October 26, 1997 compared to $14,060,200 and $4,803,000 for
the comparative periods in fiscal 1997. The majority of the $748,500 increase
for the year occurred during the first quarter primarily due to a mild winter
and sales of $234,000 at "Garcia's", the Company's Mexican restaurant which
opened during the second quarter of last year. The Company operated the same
nine restaurants during the comparative third quarters with sales in the most
recent quarter resulting in an increase of $167,100.
The Company had net earnings of $536,200 for the nine months ended October
26, 1997 compared to net earnings of $32,700 for the same period last year. Last
year's earnings include a loss of $327,600 for MCF. The continuing restaurant
operations had net earnings of $536,200 for the nine months compared to net
earnings of $360,400 for the same period last year. For the third quarter ended
October 26, 1997 the Company realized net earnings of $193,300 compared to a
loss of $145,800 for last year which includes a loss of $356,000 for MCF. The
restaurants had earnings of $193,300 for this year's third quarter compared to
earnings of $210,200 for last year.
Gross profit was 67.3% of sales for the nine month period and 67.1% for the
quarter compared to 67.3% and 67.6% respectively for the corresponding fiscal
1997 periods. The lower gross profit during the third quarter in the current
year reflects the effect of higher seafood prices. Management was able to offset
some of the increased costs by raising menu prices modestly, introducing lower
cost specials and removing some high cost items from the menu. Additionally,
some drink prices were increased to partially compensate for higher liquor
costs.
Payroll and related expenses were 28.8% of sales for nine months and 28.6%
for the quarter in the current year compared to 29.4% and 28.7% last year. The
improvement resulted primarily from the sales increase. Other operating expenses
were 20.9% for nine months and 20.4% for the third quarter versus 21.2% and
20.6% last year. Depreciation costs were higher by $24,000 and $4,000
respectively for the nine months and quarter compared to last year. The primary
factor of the year to date increase was the depreciation costs associated with
Garcia's. Administrative expenses were higher by $60,100 for the nine months and
$44,100 for the quarter compared to last year. A majority of the increases can
be attributed to increased legal fees and corporate insurance costs.
Interest expense was $32,100 and $8,000 higher for the comparable periods
this year primarily as a result of the interest expense associated with a bank
term loan previously allocated to MCF operations. Interest income was $47,400
and $24,000 higher this year due to interest received on notes from the MCF
sale.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 1.39:1 at October 26,
1997, compared to 1.06:1 at the year ended January 26, 1997. Working capital
increased by $630,000 primarily as a result of operational profits. The primary
components of the nine month cash flow statement were capital expenditures of
$497,600, $125,000 of which was used to build an outdoor dining area at the Vero
Beach, Florida restaurant, debt repayment of $1,032,800 and payments of $658,700
received from MCF. In accordance with the terms of the sale, MCF paid the
Company $500,000 in February and $100,000 in March, in addition to monthly
interest and reimbursements for lease payments. The Company used the $600,000
to pay off
6
<PAGE>
outstanding indebtness under a revolving bank line of credit and the outstanding
balance on its $350,000 bank line of credit secured by the Toms River, New
Jersey restaurant. Changes in assets and liabilities for the nine months this
year included an increase of $215,700 for inventories and a net decrease of
$182,000 in accounts payable. The additional inventory was purchased in
anticipation of higher seafood prices. During the corresponding nine month
period in fiscal 1997, working capital decreased by $1,057,900 due to capital
expenditures of $900,100, primarily for the Garcia's renovations and debt
repayment of $428,300 offset by profits of $360,400.
During the second quarter of the current year, the Company's $350,000 bank
line of credit was renewed for another year. The company borrowed $50,000 during
the second quarter and an additonal $50,000 during the third quarter for
inventory. Subsequent to October 26, 1997 an additional $225,000 was borrowed
for inventory leaving an available balance of $25,000.
During the fourth quarter of the current fiscal year, First Union National
Bank, the Company's primary bank, advanced a five year $525,000 term loan to the
Company. The proceeds were used to pay off an existing term loan which had an
outstanding balance of $225,000 and to partially fund a renovation at the Toms
River, New Jersey restaurant. The renovation, including the construction of an
outdoor dining area, is estimated to cost approximately $375,000 and should be
completed during the first quarter of next year.
Management anticipates that funds from operations will be sufficient to meet
obligations for the balance of fiscal 1998.
Inflation
It is not possible for the Company to predict with any accuracy the effect of
inflation upon the results of its operations in future years. The price of food
is extremely volatile and projections as to its performance in the future vary
and are dependent upon a complex set of factors. The Company is currently
experiencing higher seafood costs due to supply shortages.
The federal minimum wage increased to $5.15 an hour on September 1, 1997.
Management anticipates that the increase has had a minimal impact on the
Company's payroll costs because the federal law freezes the cash wages of tipped
employees which represent the bulk of the Company's minimum wage earners.
7
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CHEFS INTERNATIONAL, INC. AND SUBSIDIARIES
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SIGNATURE
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHEFS INTERNATIONAL, INC.
/s/ Anthony C. Papalia
-----------------------------------
ANTHONY C. PAPALIA
Principal Financial Officer
DATED: December 9, 1997
8
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jan-28-1998
<PERIOD-END> Oct-26-1997
<CASH> 1,059,971
<SECURITIES> 0
<RECEIVABLES> 124,263
<ALLOWANCES> 0
<INVENTORY> 1,141,149
<CURRENT-ASSETS> 2,885,369
<PP&E> 18,685,264
<DEPRECIATION> 7,373,828
<TOTAL-ASSETS> 16,334,949
<CURRENT-LIABILITIES> 2,076,926
<BONDS> 0
0
0
<COMMON> 44,898
<OTHER-SE> 13,662,247
<TOTAL-LIABILITY-AND-EQUITY> 16,334,949
<SALES> 14,808,673
<TOTAL-REVENUES> 14,808,673
<CGS> 4,848,063
<TOTAL-COSTS> 9,468,141
<OTHER-EXPENSES> 113,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,529
<INCOME-PRETAX> 536,168
<INCOME-TAX> 0
<INCOME-CONTINUING> 536,168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 536,168
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
